The Gentle Art of Disinformation

The Mystery of Reappearing Nonsense

August 16, 2001

Thank you for a mystery for me, but... No, thank you. It does not "rank high with any of the great thrillers solved by Sherlock Holmes", and... it is fiction.

But this is not to say that James Turk's thesis "that the US Treasury and possibly the IMF have been selling gold" is fundamentally wrong. It's the approach, the methods and the means by which he allows it to be distorted by smooth operators of the gentle art of disinformation that are raising questions.

To grasp the mechanics of planting disinformation upon us, I propose we analyze a simple specimen, which will make it a breeze to identify similar actions in the future.

It's late evening July 10 when my FOIA letter to the Secretary of the Treasury is posted at GOLD-EAGLE. Within hours, at 3:06 AM on July 11, someone with handle "Goldthumb" posts the following piece at GOLD-EAGLE forum:

(Please, go through it very carefully, don't let any nuance escape your attention, and most of all, don't get irritated; analyze these words with the same calm and detachment as if they were stars and planets and you were trying to pinpoint their gravitational pulls and pushes.)


Fed and Gold
(Goldthumb) Jul 11, 03:06

I do not think that we really have to worry about US gold that backs the USD.

The Fed is the one that holds ALL of the certificates on US treasury gold. Treasury accounting practices are very strict and cover all types of movement of gold. With the exception of a swap.

With the Fed's strong connections with the BIS and central banks around the world, I find it extremely difficult to believe that anything of significance would get by them.

If the Fed owns the certificates to back the currency, rest assured that they are not going to do anything to jeopardize those assets.

What we should be concerned with is US gold that does not back the USD. What I mean by this is IMF gold.

During the Mexican bailout in 1995, the Federal reserve monetized 2 billion of SDR certificates from the Treasury for the ESF. These SDR certificates were monetized at the official price of gold of $42.22 per ounce, per the FOMC transcripts. These are the same transcripts that James Turk refers to the gold swaps, except at the following meeting.

The action starts on page 5 and ends on page 10.

MR. TRUMAN. It's $42.22; it's equivalent to the official price of gold.

MR. JORDAN. We do this at the official U.S. Treasury price of gold?

http://www.federalreserve.gov/fomc/transcripts/1995/950706Meeting.PDF

The Fed still holds 2.2 billion in SDR's which you can find on the release of the H.4.1 statement, which is issued weekly.

http://www.federalreserve.gov/releases/H41/

Interestingly, the number of ounces that 2.2 billion converts to monetized at $42.22 is 52,108,005 ounces.

Gee, and what is the number of ounces that Mr. Joseph Tlaga is looking for with his FOIA request with the US Treasury? 54,067,331 ounces.

http://www.gold-eagle.com/editorials_01/tlaga071101.html

OK, so it is off by 1,959,326 ounces but on the grand scheme of things, when we are rounding to the nearest 100 million, are we not very close?

What is this "Deep Storage" that the US Treasury is referring to? Deepest gold storage I know is at the coffers of the NY Fed.

"The gold stored at the Federal Reserve Bank of New York is secured in a most unusual vault. It rests on the bedrock of Manhattan Island — one of the few foundations considered adequate to support the weight of the vault, its door, and the gold inside, 80 feet below street level and 50 feet below sea level."

http://www.ny.frb.org/pihome/addpub/goldvaul.pdf

How deep do you want to go?

In the event that the IMF stored gold at the NY Fed, and the Treasury held the SDR certificates representing that gold, then I assume that the Fed might consider that gold as collateral to swap gold with certificates on gold held in another depository, such as West Point. This is how a gold swap would most likely transpire.

As for the Fed holding gold certificates on their books with no gold to back even one of the ounces that those certificates represent, that would never happen with their knowledge. I further doubt that the Fed would even consider such action. Never, Never, Never.

Goldthumb


In response to this post, someone with the handle "tlaga" posted the following piece at Gold-Eagle forum:


@Goldthumb Re: Your "Fed and gold" of July 11, 03:06 (tlaga)

The information you are relying on is obviously false, even though it came from the horse's mouth, so to speak, namely Mr Greenspan and FOMC economist Mr Truman.

The Fed could not have monetized 2 billion of SDR certificates "at the official price of gold of $42.22 per ounce", and consequently your conversion of the current balance of 2.2 billion of SDRs on Fed's books into 52,108,005 ounces of gold - which you find "very close" "on the grand scheme of things" to 54,067,331 ounces I am looking for - must be dismissed as a rambling between supreme confusion and deliberate disinformation.

The SDR (Special Drawing Right), IMF accounting currency unit, was created in 1969. Although it was often referred to as "paper gold", it had little in common with gold. Initially, it was defined as US$1, and US$1 was defined as one thirty-fifth of a troy ounce of fine gold. (The official price of gold was raised in December 1971 to $38, and in February 1973 to $42.22.) When the free float of US dollar was ushered in on March 19, 1973, SDR had no choice but to follow the dollar's lead. Since July 1, 1973, SDR has been defined in terms of a basket of 16 currencies, reduced to five currencies in 1981, and to four in 1999. July 13, 2001, IMF valuation of SDR was SDR1 = US$1.24859.

SDR valuation on July 5, 1995, when FOMC meeting in question took place, must have been SDR1 = US$1.25, because 2 billion SDRs were exchanged into 2.5 billion dollars. If the rate of exchange would have been SDR1 = US$42.22, the same two billion SDRs would have to be exchanged into 84.44 billion dollars.

Just because something is uttered by Mr Greenspan and seconded by Mr Truman, it doesn't have to be taken for the face value. It is still subject to analysis and critique.

Building phantom structures on such obvious errors, and then attaching them to meritorious issues, such as the issue of ownership of West Point gold, colorizes such issues with irrational residue, and this is the reason why I must take so strong an exception to the views expressed in "Fed and gold".

Let us go back to the point when Alan Greenspan is cracking a joke at the expense of Jerry L. Jordan, CEO of the Cleveland Fed, in order to grasp the context in which the value of one SDR was misrepresented to be $42.22 at the FOMC meeting of July 5, 1995:


CHAIRMAN GREENSPAN: I think I've got it! [Laughter] You are telling me that the SDR certificate comes out of the Treasury and we cancel the Treasury obligation and it is wholly an asset swap so that the debt to the public of the US Treasury goes down by that amount. Is that what happens? That solves President Jordan's problem too! [Laughter]

MR JORDAN: Can I follow up on that? The same thing happened when we changed the price of an ounce of gold from $35 to $38 and then to $42.22. The Treasury got a windfall of about $1 billion to $1.2 billion in both of those so-called devaluations. So an issue on this is: What was the dollar price of SDRs that we monetized? You say I have an asset on my balance sheet and I don't know what the value of it is.

CHAIRMAN GREENSPAN: It's about $42.

MR TRUMAN: It's $42.22; it's equivalent to the official price of gold.

MR JORDAN: We do this at the official US Treasury price of gold?

CHAIRMAN GREENSPAN: Do you mean that we can lower the debt to the public by moving the price of gold up to the market price? That could cut the debt back by not insignificant amount!

MR JORDAN: I have been trying not to mention that publicly for fear that someone might want to do it.

CHAIRMAN GREENSPAN: It's probably too late; we just mentioned it.

MR JORDAN: It will become known five years from now!

MR LINDSEY: Five years from now, it will be read in the transcript for this meeting.

MR BLINDER: By which time it already will have been done.


http://www.federalreserve.gov/fomc/transcripts/1995/950706Meeting.PDF


What would have happened, if rather than confronting "Goldthumb" I would have swallowed his hook instead?

People would be whispering behind my back: "This man believes that SDR is valued at 1/42.22 of a fine troy ounce of gold." Which, naturally, would be the equivalent of: "This man is a new founder of the Flat Earth Society."

I sent a long message, entitled "Caution! Caution! Caution", to GATA crew at the Durban Gold Summit, pleading for low key on Bundesbank story, to save GATA from such embarrassment. What if Bundesbank officials invited Geraldo Rivera to open their vault in Frankfurt, and all the gold would still be there? (They could not, because German gold is kept in a number of locations in Germany and abroad; e.g., gold acquired in the 50s and 60s from US Treasury was not brought to Germany, but was kept in New York under earmark.) But the idea was to impress on GATA crew the importance of proceeding step by step, verifying every bit of information on the way, rather than risk all GATA's reputation on one conjecture.

The effort to make us believe that SDR value was defined in terms of gold, at 42.22 SDRs to a fine troy ounce of gold, did not die down with Goldthumb's post. One month later, it reappeared as fundamental assertion in the essay of James Turk "The Mystery of the Disappearing SDR Certificates".

I don't know who the "Goldthumb" is, nor who was it exactly who sold his idea to James Turk.

All I know is that current value of SDR is determined by the basket of four currencies (dollar, euro, yen and pound), and that there is no mystery of "disappearing SDR certificates".

Had James Turk multiplied 9.2 billion SDRs by $1.25, he would have accounted for $11.5 billion of $12.5 billion advanced to Mexico under ESF "loan guarantee". All SDRs assigned to the United States belong to ESF. ESF issued SDR certificates against them, and the Fed, with few computer strokes, exchanged those certificates for Federal Reserve Notes. That was the mechanism of the Mexican bailout. And repayment of those advances naturally allowed ESF to extinguish the SDR certificates. Whether ESF extinguished SDR certificates held by the Fed in order to issue them to others for different consideration can be tested by a FOIA request directed to the Secretary of the Treasury. There is no need for untested conjecture.

In my essay "Euro and Gold Price Manipulation, Part 2", I wrote that it was BIS that arranged $10 billion of $12.5 billion for Mexican bailout. Why did I say so? Because the great Reginal Howe said so. That's why!

By accepting someone's assertion for its face value, at best we may be duplicating someone's honest mistake, at worst we may be executing someone's elaborate disinformation design.

Reginal Howe is our great treasure, and so is James Turk. But no one can be so great that his opinion can be accepted for its face value without verification.

Let us keep our eyes open. GATA is greater than anything ever attempted to confront the curse of the fiat money. We should not risk its reputation lightly, especially now, when Reginald Howe's historical law suit is approaching its watershed moment.

Greetings!

China is poised to become world's biggest gold consumer.